OPERATING SEGMENTS
Our
segments are strategic business units that offer different products and
services over various technology platforms and are managed accordingly.
We analyze our various operating segments based on segment income
before income taxes. We make our capital allocations decisions primarily
based on the network (wireless or wireline) providing services.
Actuarial gains and losses from pension and other postretirement
benefits, interest expense and other income (expense) – net, are managed
only on a total company basis and are, accordingly, reflected only in
consolidated results. Therefore, these items are not included in the
calculation of each segment’s percentage of our total segment income. We
have four reportable segments: (1) Wireless; (2) Wireline;
(3) Advertising Solutions; and (4) Other.
Additional
information about our segments, including financial information, is
included under the heading “Segment Results” on pages 33 through 40 and
in Note 4 of the Annual Report and is incorporated herein by reference
pursuant to General Instruction G(2).
WIRELESS
Wireless
consists of our subsidiary, AT&T Mobility, which operates as a
wireless provider to both business and consumer customers. Our Wireless
segment provided approximately 47% of 2010 total segment operating
revenues and 67% of our 2010 total segment income. At December 31, 2010,
we had more than 95 million wireless subscribers. We classify our
customers as either postpaid, prepaid, connected device or reseller.
Services and Products
We
offer a comprehensive range of high-quality nationwide wireless voice
and data communications services in a variety of pricing plans,
including postpaid and prepaid service plans. Our offerings are tailored
to meet the communications needs of targeted customer segments,
including youth, family, active professionals, small businesses,
government and major national corporate accounts.
Service – Our
voice service is generally offered on a contract basis for one- or
two-year periods, referred to as postpaid. Under the terms of these
contracts, service is billed and provided on a monthly basis according
to the applicable rate plan chosen. Our wireless services include basic
local wireless communications service, long-distance service and roaming
services. Roaming services enable our subscribers to utilize other
carriers’ networks when they are “roaming” outside our network
footprint. We also charge fees to other carriers for providing roaming
services to their customers when their customers utilize our network. We
offer prepaid voice service to meet the demands of distinct consumer
segments, such as the youth market, families and small business
customers, who prefer to control usage or pay in advance.
Wireless
data revenues continue to be a growing area of our business,
representing an increasing share of our overall subscriber revenue. We
are experiencing solid growth from both consumer and enterprise wireless
data services, as an increasing number of our subscribers have upgraded
their handsets to more advanced integrated devices. We are also seeing
rapid growth in demand for new data-centric devices such as notebooks,
tablets, eReaders, direction and navigation aids and monitoring devices.
Customers in our “connected device” category (e.g., users of eReaders
and navigation aids) purchase those devices from third-party suppliers
which buy data access supported by our network. Other data-centric
device users are classified as either postpaid customers (primarily
netbook and notebook users) or prepaid customers (primarily tablet
users) since they purchase service directly from us. We continue to
upgrade our network and coordinate with equipment manufacturers and
applications developers in order to further capitalize on the continued
growth in the demand for wireless data services. As of December 31,
2010, we were a leading provider of wireless data in the U.S. wireless
industry based on subscribers.
Equipment – We
sell a wide variety of handsets, wirelessly enabled computers (i.e.,
notebooks and tablets) and personal computer wireless data cards
manufactured by various suppliers for use with our voice and data
services. We sell through our own company-owned stores or through agents
or third-party retail stores. We also sell accessories, such as
carrying cases, hands-free devices, batteries, battery chargers and
other items, to consumers, as well as to agents and other third-party
distributors for resale. Like other wireless service providers, we often
provide postpaid contract subscribers substantial equipment subsidies
to initiate or upgrade service.
Additional
information on our Wireless segment is contained in the Annual Report
in the “Operating Environment Overview” section under the heading
“Expected Growth Areas,” “Wireless” beginning on page 42 and is
incorporated herein by reference pursuant to General Instruction G(2).
WIRELINE
Our
Wireline subsidiaries provide both retail and wholesale communication
services domestically and internationally. Our Wireline segment provided
approximately 49% of 2010 segment operating revenues and 34% of our
2010 total segment income. We divide our wireline services into three
product-based categories: voice, data and other. Revenues from our
traditional voice services have been declining as customers have been
switching to wireless, cable and other Internet-based providers. In
addition, the continuing weak economy has caused wireline customers to
terminate their residential or business phone service as individuals
have lost jobs or otherwise combined households and businesses have
closed or reduced operations. We have responded by offering packages of
combined voice and data services, including broadband and video, and
intend to continue this strategy during 2011.
Services and Products
Voice –
Voice includes traditional local and long-distance service provided to
retail customers and wholesale access to our network and individual
network elements provided to competitors. At December 31, 2010, our
wireline subsidiaries served approximately 23 million retail consumer
access lines, 19 million retail business access lines and 2 million
wholesale access lines. We also have a number of integrated voice and
data services, such as integrated network connections, that provide
customers the ability to integrate access for their voice and data
services, the data component of which is included in the data category.
Additionally, voice revenues do not include any of our VoIP revenues,
which are included in data revenues.
Long
distance consists of traditional long distance and international long
distance for customers that select us as their primary long-distance
carrier. Long distance also includes services provided by calling card,
1-800 services and conference calling. These services are used in a wide
variety of business applications, including sales, reservation centers
or customer service centers. We also provide wholesale switched access
service to other service providers.
Voice
also includes calling features, fees to maintain wire located inside
customer premises and other miscellaneous voice products. Calling
features are enhanced telephone services available to retail customers
such as Caller ID, Call Waiting and voice mail. These calling features
services are generally more profitable than basic local phone service.
Data – We
provide data services that rely on IP-based technology and data
services that rely on older, circuit-based technology. Approximately 70
percent of our data customers have transitioned from using our
circuit-based services to using our IP-based services and we expect that
trend to continue. We provide businesses voice applications over
IP-based networks (i.e., Enhanced Virtual Private Networks or “EVPN”).
Over the past several years, we have built out our new multi-protocol
label switching/asynchronous transfer mode, or MPLS/ATM network, to
supplement, and eventually replace, our other extensive global networks.
These products allow us to provide highly complex global data networks.
Additional IP-based services include Internet access and network
integration, dedicated Internet and enterprise networking services,
U-verse services and related data equipment sales.
Our
circuit-based, traditional data products include switched and dedicated
transport that allow business customers to transport data at high
speeds, as well as DSL and dial-up Internet access. Our private line
offering uses high-capacity digital circuits to transmit from
point-to-point in multiple configurations and allows customers to create
internal data networks and to access external data networks. Switched
Transport services transmit data using switching equipment to transfer
the data between multiple lines before reaching its destination.
Dedicated Transport services use a single direct line to transmit data
between destinations. DSL is a digital modem technology that converts
existing twisted-pair telephone lines into access paths for multimedia
and high-speed data communications to the Internet or private networks.
DSL allows customers to simultaneously make a phone call and access
information via the Internet or an office local area network. Digital
Services use dedicated digital circuits to transmit digital data at
various high rates of speed.
Network
integration services include installation of business data systems,
local area networking and other data networking offerings. Internet
access services include a wide range of products for residences and
businesses including basic dial-up access service, dedicated access, web
hosting, managed services, e-mail and high-speed access services. Our
managed web-hosting services for businesses provide network, server and
security infrastructure as well as built-in data storage and include
application performance management, database management, hardware and
operating system management. Our hosting services also provide customers
with secure access to detailed reporting information about their
infrastructure and applications.
Packet
services consist of data networks using packet switching and
transmission technologies, including traditional circuit-based, and IP
connectivity services. Packet services enable customers to transmit
large volumes of data economically and securely and are used for local
area network interconnection, remote site, point of sale and branch
office communications. High-speed packet services are used extensively
by enterprise (large business) customers.
Enterprise
networking services provide comprehensive support from network design,
implementation and installation to ongoing network operations and
management for networks of varying scales, including local area
networks, wide area networks, and virtual private networks. These
services include applications such as e-mail, order entry systems,
employee directories, human resource transactions and other database
applications.
We also offer Wi-Fi services (local radio frequency commonly known as wireless fidelity).
We
provide local, interstate and international wholesale networking
capacity to other service providers. We offer a combination of
high-volume transmission capacity and conventional dedicated line
services on a regional, national and international basis to wireless
carriers, interexchange carriers, Internet service providers (ISPs) and
facility-based and switchless resellers. Our wholesale customers are
primarily large ISPs, wireless carriers, competitive local exchange
carriers (CLECs), regional phone companies, interexchange carriers,
cable companies and systems integrators. We also have sold dedicated
network capacity through indefeasible rights-of-use agreements under
which capacity is furnished for contract terms as long as 25 years.
Other – Other
includes application management, security service, integration
services, customer premises equipment, outsourcing, government-related
services, and satellite video services. Security services include
business continuity and disaster recovery services as well as premise
and network based security products.
Customer
premises equipment and other equipment sales range from single-line and
cordless telephones to sophisticated digital PBX systems. PBX is a
private telephone switching system, typically used by businesses and
usually located on a customer’s premises, which provides intra-premise
telephone services as well as access to our network.
ADVERTISING SOLUTIONS
Advertising
Solutions includes our directory operations, which publish Yellow and
White Pages directories and sell directory advertising and
Internet-based advertising and local search. The Advertising Solutions
segment provided approximately 3% of total segment operating revenues
and 4% of our 2010 total segment income. This segment sells advertising
services throughout the United States, with our print directory
operations primarily covering our 22-state area.
OTHER
Our
Other segment includes customer information services (i.e., operator
services) and corporate and other operations, as well as impacts from
corporate-wide decisions for which the individual operating segments are
not being evaluated, including interest cost and expected return on
pension and postretirement benefits. The Other segment provided
approximately 1% of total segment operating revenues. In 2010, segment
operating expense exceeded revenues. We also include in this segment the
equity income (loss) from our investments in Telmex and America Movil.
In August 2010, we sold Sterling Commerce Inc. (Sterling). The Other
segment results for all periods shown have been adjusted to exclude the
results of Sterling, which are now reflected in discontinued operations.
Wireless
Segment Results
|
|
|
|
|
|
|
|
|
|
|
Percent Change |
| |
|
|
|
|
|
|
|
|
|
2010 vs.
|
|
2009 vs.
|
| |
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
2008
|
Segment operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
$ |
53,510 |
|
|
$ |
48,563 |
|
|
$ |
44,249 |
|
|
|
10.2 |
% |
|
9.7 |
% |
Equipment
|
|
|
4,990 |
|
|
|
4,941 |
|
|
|
4,925 |
|
|
|
1.0 |
|
|
0.3 |
|
Total Segment Operating Revenues
|
|
|
58,500 |
|
|
|
53,504 |
|
|
|
49,174 |
|
|
|
9.3 |
|
|
8.8 |
|
Segment operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support
|
|
|
36,746 |
|
|
|
33,631 |
|
|
|
31,530 |
|
|
|
9.3 |
|
|
6.7 |
|
Depreciation and amortization
|
|
|
6,497 |
|
|
|
6,043 |
|
|
|
6,025 |
|
|
|
7.5 |
|
|
0.3 |
|
Total Segment Operating Expenses
|
|
|
43,243 |
|
|
|
39,674 |
|
|
|
37,555 |
|
|
|
9.0 |
|
|
5.6 |
|
Segment Operating Income
|
|
|
15,257 |
|
|
|
13,830 |
|
|
|
11,619 |
|
|
|
10.3 |
|
|
19.0 |
|
Equity in Net Income of Affiliates
|
|
|
9 |
|
|
|
9 |
|
|
|
6 |
|
|
|
- |
|
|
50.0 |
|
Segment Income
|
|
$ |
15,266 |
|
|
$ |
13,839 |
|
|
$ |
11,625 |
|
|
|
10.3 |
% |
|
19.0 |
% |
The following table highlights other key measures of performance for the Wireless segment:
| |
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010 vs.
2009
|
2009 vs.
2008
|
Wireless Customers (000)
|
|
|
95,536 |
|
|
|
85,120 |
|
|
|
77,009 |
|
|
|
12.2 |
% |
|
|
10.5 |
% |
Net Customer Additions (000)1
|
|
|
8,853 |
|
|
|
7,278 |
|
|
|
6,699 |
|
|
|
21.6 |
% |
|
|
8.6 |
% |
Total Churn
|
|
|
1.31 |
% |
|
|
1.47 |
% |
|
|
1.70 |
% |
|
(16) BP
|
|
(23) BP
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postpaid Customers (000)
|
|
|
68,041 |
|
|
|
64,627 |
|
|
|
59,653 |
|
|
|
5.3 |
% |
|
|
8.3 |
% |
Net Postpaid Customer Additions (000)1
|
|
|
2,153 |
|
|
|
4,199 |
|
|
|
4,523 |
|
|
|
(48.7 |
)% |
|
|
(7.2 |
)% |
Postpaid Churn
|
|
|
1.09 |
% |
|
|
1.13 |
% |
|
|
1.18 |
% |
|
(4) BP
|
|
(5) BP
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid Customers (000)
|
|
|
6,524 |
|
|
|
5,350 |
|
|
|
6,106 |
|
|
|
21.9 |
% |
|
|
(12.4 |
)% |
Net Prepaid Customer Additions (000)1
|
|
|
952 |
|
|
|
(801 |
) |
|
|
71 |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reseller Customers (000)
|
|
|
11,645 |
|
|
|
10,439 |
|
|
|
8,589 |
|
|
|
11.6 |
% |
|
|
21.5 |
% |
Net Reseller Customer Additions (000)1
|
|
|
1,140 |
|
|
|
1,803 |
|
|
|
1,102 |
|
|
|
(36.8 |
)% |
|
|
63.3 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Connected Device Customers (000)
|
|
|
9,326 |
|
|
|
4,704 |
|
|
|
2,661 |
|
|
|
98.3 |
% |
|
|
76.8 |
% |
Net Connected Device Customer Additions (000)
|
|
|
4,608 |
|
|
|
2,077 |
|
|
|
1,003 |
|
|
|
- |
|
|
|
- |
|
1 Excludes merger and acquisition-related additions during the period.
